In this file photo, an Amazon.com package is prepared for shipment by a United Parcel Service driver in Palo Alto, Calif.

Paul Sakuma, Associated Press

Minnesota's new tax revenue hard to snag?

Article by: LORI STURDEVANT

Star Tribune

June 23, 2013 - 9:19 PM

The numbers always seemed screwy to me. If congressional action allowing all states to apply their sales taxes to online purchases would net Minnesota a cool $400 million a year, as the state Revenue Department keeps saying, why was the new “Amazon tax” only slated to bring in about $5 million per year?

The answer became obvious last week. Amazon unkindly cut off its Minnesota-based advertising affiliates with a bare two weeks’ notice to avoid collecting sales tax on Minnesota purchases starting July 1.

The state’s tax collectors allowed that they were not surprised. They’d been expecting as much from Amazon, said Revenue Commissioner Myron Frans. It’s what the tax dodger, er, online retailer has done in at least seven other states. Hence the measly forecast for tax collections from online sellers with Minnesota affiliates.

(The official name for the new sales tax provision is “affiliate nexis.” It’s not a new tax, but a new requirement that when an online seller has a Minnesota affiliate, the tax on its Minnesota sales must be collected by the seller at the time of purchase, rather than being reported and paid later by the consumer — as all consumers faithfully and fully do every year, right?)

The Revenue Department had been urging enactment of the Amazon tax since DFLer Mark Dayton became governor, even though it was known to be tricky to forecast and fairly easy to dodge.

Truth be told, much the same can be said of most of the $1 billion or so in annual tax increases enacted by the 2013 Legislature.

For example, the howl that went up from the warehouse industry about a sales tax that will start applying next April to its business-to-business transactions was accompanied by credible threats that warehouses would move to Hudson, Wis.

Even before the session ended, tax planning seminars popped up offering to coach well-heeled Minnesotans about ducking the new 9.85 percent income tax rate. It will apply this year to that portion of taxable incomes exceeding $250,000 for joint filers and $150,000 for single filers.

Then there’s the $1.60-per-pack boost in the cigarette tax, an amount state economist Tom Stinson describes in his trademark deadpan as “a big discontinuity.” It might be the easiest to dodge of all. Cigarette sellers just across the Minnesota state lines — and on Minnesota’s Native American lands — can prepare for land-office business after July 1, when Minnesota smokes will become the most expensive in the region.

The lowest cigarette tax in the country is in Missouri, just two states south. It’s 17 cents per pack, noted Frans, who happens to have such figures at top of mind these days. He’s so well-versed in the intricacies of tobacco tax law that he found a wrinkle therein that could be used to get debt service for the new Vikings stadium back on track after it skidded into an e-pulltabs ditch.

What’s odd about using higher cigarette taxes to balance the state budget is that politicians say they actually want Minnesotans to pay less of it, not more. The new tax is intended to be so high that smokers will seek to avoid it by kicking their nicotine habit.

That’s the kind of tax avoidance that politicians like. The kind that involves spending six months and a day in no-income-tax Florida? That’s evidently tolerated. Dayton suggested nicking snowbirds with a special tax when they return to their summer nests in Minnesota. Communities and industries who cater to these nomads objected, and the idea was quietly dropped.

Other kinds of tax avoidance are frowned upon in the vicinity of Revenue’s Harold Stassen Building. One can think of the Amazon tax as an attempt to end rampant tax avoidance.

Frans said his Revenuers are gearing up to crack down on large-scale tobacco bootlegging operations and online retailers who profess not to have Minnesota affiliates but quietly keep a few. He expects to see some of the latter.

“Minnesota has the fifth-fastest-growing economy in the country. Why would you choose to reduce your footprint in this state now?” Frans asked.

But I’ve observed that in the rest of Minnesota, tax avoidance within “perfectly legal” parameters is socially acceptable behavior — so much so that people brag about it to their friends. Those who engage in it count themselves as patriots, and by today’s lights, they may well be. But they don’t think like the fellows in 1776 who pledged to their new venture “our Lives, our Fortunes and our sacred Honor.”

They don’t even think about taxes in the way that their parents and grandparents did, economist Stinson noted.

“People who lived through the Depression knew that bad things could happen to good people. They knew that government is necessary when that happens,” he said recently.

In 1933, Farmer-Labor Gov. Floyd B. Olson made Minnesota a tax outlier. He pushed through a Depression-shocked Legislature the state’s first income tax, one of the few in the country. It was based on ability to pay and dedicated to education, which was struggling just then.

Minnesotans are more mobile today than in 1933. Many of them are keen to sock away savings for retirement. It’s harder for this state to be a tax outlier and not see an exodus of customers, capital, residents or all three.

But Minnesotans who are looking to dodge this year’s new taxes should know that some things haven’t changed in 80 years. Today’s new taxes will go primarily to education, which has been struggling. And bad things still happen to good people.